Crowdfunding: why the SEC bans it, Obama wants it, and banks fear it

[Recursion]

http://www.good.is/post/crowdfunding-why-the-sec-bans-it-obama-wants-it-and-banks-fear-it/

President Obama has called for a lifting of the SEC ban (of funding small business through large networks of small investors) as part of his jobs plan. "Right now, entrepreneurs like these bakers and these gadget-makers are already using crowdfunding platforms to raise hundreds of thousands of dollars in pure donations—imagine the possibilities if these small-dollar donors became investors," two White House officials wrote in an explanation of the policy.

Most investing rules—like the Securities and Exchange Act of 1934, which bans crowdfunding—date to overhauls that followed the 1929 stock market crash. They are designed to protect unsophisticated, generally low-income investors from fraud. Among those rules is a limit on the number of people who may invest in a private company before it must subject itself to the increased scrutiny of the public markets; the federal cap is 500 investors. Obama wants to remove that limit.

We all know Obama likes the idea of legions of small donors coming together for a cause, but the policy isn’t just nostalgia for 2008. Despite general objections to Obama’s jobs policy, some Republicans are on board too. Congressman Patrick McHenry (R-NC) has introduced a bill removing the cap on small investors. To protect against scams, the law limits crowd investors to no more than 10 percent of their income or $10,000, whichever is less.

"With so much difficulty obtaining capital in today’s economy, most business ideas never make it past the dinner table," McHenry says. "This legislation will connect entrepreneurs with everyday investors to help get their businesses off the ground."

Basically, Kiva as applied to domestic business (only full shareholders or bondholders instead of short-term lenders). This has been illegal since 1934, but what that law was trying to stop was Ponzi schemes, not this.

[MannyGoldstein]

1. This is a very, very good idea nt